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Pound to Euro Exchange Rate Rangebound as UK Vaccine Success Supports Sterling

European Central Bank

The Pound to Euro (GBP/EUR) exchange rate was rangebound this morning, as data from the Eurozone showed that GDP in the fourth quarter shrank less than expected.

At the time of writing the pair is currently trading at around 1.1445.

Pound (GBP) Supported by Rapid Testing Proposal

The Pound continues to find support in both the UK’s successful vaccine rollout and optimism over the easing of restrictions in the coming weeks.

Prime Minister Boris Johnson has proposed the use of rapid coronavirus testing to help to reopen venues such as nightclubs and theatres, a proposal supported by the World Health Organisation (WHO).

David Nabarro, WHO’s special envoy on Covid-19 spoke on rapid testing this morning, saying:

‘The secret to getting life back to some degree of normality for most of us is going to be the availability of really reliable, super-quick tests. That will make movement so, so much easier.’

In support of the UK’s third national lockdown, coronavirus-related deaths registered in the week ending on 5 February were down 13% from the week before, data from the Office for National Statistics (ONS) shows.

Euro (EUR) Finds Relief in Better-Than-Expected Preliminary Eurozone GDP Data

The Euro found some support today from both better than expected preliminary GDP data from the Eurozone at the end of 2020, and positive ZEW Economic Sentiment for February from Germany.

The Eurozone economy shrank by 0.6 percent quarter-on-quarter in Q4 of 2020, less than an initial estimate of 0.7 percent fall, amid extended lockdowns across the bloc to help combat the coronavirus pandemic.

Furthermore, the ZEW Indicator of Economic Sentiment for the Eurozone’s largest economy, Germany edged up to 71.2 in February of 2021, well above market forecasts of 59.6.

It is the highest reading since September 2020, as markets become increasing optimistic about Germany’s economic recovery in the next six months.

Pound to Euro Outlook: UK Inflation Data in Focus

Pound investors will be looking toward tomorrow’s year-on-year inflation data release, which is forecast to have stalled at 0.6 which could paint a gloomy picture for the UK economy, and Sterling could struggle.

Pound traders will also look to the second half of the week when key PMI data is released, which could give a better indication of the state of the UK’s economy going forward.

Meanwhile, Euro traders will be keeping an eye on tomorrow’s latest data of the Eurozone’s Construction Output from December.

Any signs that the Eurozone’s economy is on the road to recovery would be EUR-positive.

The Pound to Euro exchange rate will also be dictated by any further coronavirus developments, with any indication the UK will start to ease restrictions sooner rather than later providing extra support to GBP.

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